Li & Fung Acquires Crimzon Rose, Plans Asia Expansion

Hong Kong—As part of its three-year plan to reach $1.5 billion in core operating profits, sourcing giant Li & Fung said acquisitions would be a cornerstone in achieving this. And one of its latest puts Li & Fung firmly into the fashion jewelry arena for the first time: Crimzon Rose.

Based in North Providence, Rhode Island, Crimzon Rose is one of the leading vendors in fashion jewelry with estimated annual sales exceeding $100 million. The decade-old Crimzon Rose boasts a roster of retail clients from drugstores and discounters to specialty chains to department stores and sells “more pieces of fashion jewelry than any other company in the world.”

Known for its speed in getting product through the pipeline, Crimzon Rose employs 350 people including more than 125 who work in its five facilities in China.

The company also has been in the forefront of developing exclusive private brand collections for retailers including jewelry and hair accessories for Jennifer Lopez and Daisy Fuentes for Kohl’s and French Connection UK for Sears. In 2009, Crimzon Rose acquired its first major branded business, Erica Lyons, a leading resource for department stores.

Felix Porcaro, president and ceo at Crimzon Rose, hailed the purchase as “a major step forward for Crimzon Rose. “This brings us even more opportunity to expand our expertise into other brands under Li & Fung and furthering our sourcing capabilities. I see nothing but great growth ahead.”

Crimzon Rose, Other Acquisitions to Add $1.2 Billion in Sales

In this month alone, besides buying Crimzon Rose for an undisclosed figure, Li & Fung purchased Fishman & Tobin, a children’s clothing supplier as well as apparel makers Loyaltex Apparel and TVMania, a European suppliers of branded products whose licenses include Hello Kitty and Mickey Mouse.

According to Bruce Rockowitz, Li & Fun’s president and ceo, the four companies had total sales of about $900 million. Li & Fung acquired 10 other companies this year with combined annual revenue of about $300 million, he said.

Commenting on Li & Fung’s recently released earnings report, Rockowitz blamed the cost of acquisitions and other investments for pushing the company’s first-half profit down 15% to $236 million and instead pointed to a 33% rise in sales to $8.8 billion, achieved during one of the worst recessions in the past three years, as a measure of the firm’s continuing success.

Last week, Rockowitz told investors that its production volume from China, its largest supplier, was already up 30% in the first six months of the year. And as the company moves forward with its current three-year plan, China “will still be a huge growth area.”

That said, the Hong Kong based-business is also seeking to offset higher labor costs and a shortage of production capacity in China by moving some manufacturing to countries with lower wages, such as Bangladesh, Vietnam and Indonesia.

Bangladesh, for instance, is now its second-largest supplier, ousting Vietnam from the slot with a 52% hike in production volume in the first half of the year. The country “is really in high growth mode and we’re moving a lot of business in Bangladesh,” Rockowitz said.

Not to mention a shift to selling into Asia as well as sourcing apparel and accessories there, which is seen as a key driver of future growth. Largely as a result of its acquisition last year of Integrated Distribution Services Group, its customer base has seen a dramatic change, with the United States falling from 67% to 58% of its business, and a drop from 25% to 22% also seen in Europe.

The difference is Asia and China, which have grown from virtually zero to around 12% of Li & Fung’s customer base. This “will be a very fast growing part of our business and is very positive for the company,” Rockowitz added. Also seen as good news is the fact that prices have now started to moderate–improving not only the cost of goods but Li & Fung’s margins too.

“The cost of commodities like cotton and oil has come down dramatically, and the market is very positive now for our distribution businesses,” said Rockowitz, adding that average cost price is likely to gradually trend down from the high.

Opportunities in Private Label

Li & Fun’s focus is now divided clearly across three divisions–trading, logistics and distribution–where there are untapped opportunities to build its business by selling new services to existing customers, the company said.

A case in point is its deal with Liz Claiborne Inc., which in 2009 offloaded its sourcing business to Li & Fung and signed a deal extending this to include all its warehousing and distribution in the United States, too. The move will see Li & Fung deliver Kate Spade, Juicy Couture and Lucky Brand merchandise to stores and wholesale customers, making Liz Claiborne one of the logistics group’s largest customers.

“We see many more opportunities to do outsourcing deals with our existing customers across our different networks,” Rockowitz said.

Looking ahead, Rockowitz said that while the environment in the United and Europe is uncertain and unlikely to see a marked improvement this year, “we believe Asia will continue to expand, and that’s the market we are planning for.

“But we still have a lot of customers [in the US and EU] who still need goods, and what is growing is private label, because of what’s happening in the world with higher prices and customers needing more value, and we’re gaining market share in this environment,” Rockowitz said, noting all of which adds up to a growing top line, with the first half “indicative of what our year and beyond opportunities look like.”